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| We study changes in job reallocation in Europe after 2000 using novel microaggregated data that we collected for 19 European countries. In all countries we document broad-based declines in job reallocation rates that concern most economic sectors and size classes. These declines are mainly driven by dynamics within sectors size and age classes rather than by compositional changes. Simultaneously employment shares of young firms decline. Consistent with US evidence firms’ employment has become less responsive to productivity shocks. However the dispersion of firms’ productivity shocks has decreased too. To enhance our understanding of these patterns we derive and apply a firm-level framework that relates changes in firms’ market power labor market imperfections and production technology to firms’ responsiveness and job reallocation. Using German firm-level data we find that changes in markups and labor output elasticities rather than adjustment costs are key in rationalizing declining responsiveness. |
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